Buy cement shares: analysts

Stockbrokers have recommended for prospective medium term investors to buy shares of cement companies on the back of increased demand that is forecast to grow by over 10 per cent this year.

The anticipated growth, however, depends on the sustained infrastructure investments at the current levels.

The two listed cement firms—Tanga Cement (Simba) and Tanzania Portland Cement Company (Twiga)—share prices traded at 2,400/- and 2,640/-each, respectively.

Currently, cement demand stands at four million tonnes but the local capacity is only 3.75million tonnes from four companies. Others producers are Mbeya Cement and Athi River Mining.

The report, Cement Analysis, notes that Tanzania is currently a net importer of cement, importing 500,000 tonnes per annum or 12 per cent of the total consumption, recommending the medium-term buy on Simba at a price of 2,400/-.

Simba share had appreciated slightly by 0.83 per cent late last month before slumping back by the same amount to 2,400/- currently. The report recommended Simba’s Price to Book Value (P/ BV) valuation of 1.1 times and Price Earning Ratio (PER) of 4.4 times, relatively cheaper compared to its peers in the local and regional markets.

Simba, the analysts say, is currently trading at PER of 7 times while Nairobi Stock Exchange (NSE) listed cement companies averages at PER of 15 times.

“Our (the report) optimistic view on the counter is further backed by relatively strong performances in its sales and revenue generation coupled with improved efficiencies resulting from reduced maintenance costs,” the report indicates.

On Twiga the report also recommends medium-term buy at a price of 2,600/- a share with upside of 10 per cent.

The company has a P/BVs valuation of 2.2 times and PER of 7.6 times, a cheaper valuation compared to its peers in the NSE which currently trade at PER trailing of 15 times.